Thursday October 09, 2008 
Thursday October 09, 2008
Treasury Secretary Paulson says has power to inject bank capital, re-capitalize financial institutions of every size
US Treasury Secretary Henry Paulson said on Wednesday [8 Oct 2008] a recently approved financial bailout bill gives him wide authority to inject capital into the banking system and would not rule out having Treasury take an ownership position in banks if necessary. "We will use all of the tools we've been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size," he told a news conference. Paulson said the package grants "broad, flexible authorities for Treasury to buy or insure troubled assets, provide guarantees, and inject capital".
Treasury and the Federal Reserve have tried repeatedly to jump-start lending by injecting huge does of liquidity into the banking system, taking over some failed institutions and, on Wednesday, engineering an unprecedented cut in global interest rates among central banks in North America and Europe. So far, financial markets remain in turmoil with stock prices plunging and consumers and businesses having difficulty in getting credit from banks that are wary of lending. That may make taking direct stakes in banks more palatable. "It is the policy of our federal government to use all resources at its disposal to make our financial system stronger," Paulson said.
- So they are finally doing it. "It" being the last, final steps on the road to all-out monetization and global hyperinflation that some members of the contrarian community have been watching out for over the past years. "It" being in the past few days, trillion-dollar injections by the Fed into the markets, global co-ordinated interest rate cuts by a host of panicked governments and central banks all across America, Europe and Asia. "It", now being the US government's final admission that it is willing to "use all resources" and "all of the tools" that it has at its disposal, to re-capitalize "financial institutions of every size", and to "inject capital" as it sees fit.
If you are not "shuddering in your boots" yet, so to speak, well, you should be. Banks not lending to each other? Buy them all up, and make them lend! Stock prices not doing too well? Print up 10 trillion dollars and bid them back up! Businesses in a credit freeze because nobody is buying commercial paper? Print up 5 trillion dollars and buy it up!
This is the part where the "electronic printing press" comes into play. Sure they were reluctant to turn to that at first, waiting instead for world stock markets to panic and drop 5% every day, which if it had continued, would mean that there won't be much of a stock market left in, like, 20 days. But with this monster printing press now being put into play, chances are good that it will overshoot. Just like if you were to try to drink from the proverbial firehose - you will probably get wet.
See also :
1. Congress votes 263-171 to approve revised $700 billion bailout plan
2. Vertical takeoff - US M3 money supply growth rate jumps over 16%
(2008-10-09 15:17:21 SGT)
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Hi Ee Mien
Pretty groomy world!
I won't be surprise if we see shorter recession cycles with greater volatility after we survive this one. It is a roller coaster ride I doubt I can handle better as I get older.
People aren't better off with all our modern devices, financially and in material. I worry often if our next generation will have it better off than us. It is scary to think that the world will be a place without security as we fail to manage the failures of our ever growth needs with increasing intrusion of our inter-connectedness.
I am still daydream of staying on a farm somewhere and just leave off it secluded than be trampled in this modern world.
Take care.
Best Regards
Sze Chieh
Posted by Sze Chieh on October 10, 2008 at 12:31 PM SGT #